NOTE: This should also work with any other version of Photoshop, but some steps may be a slightly different.
Step 1: Find the Images
The reason why it must be a PNG is because of the transparency and shadow. A JPEG or BMP image will not have the transparency you need.
Next, find an image that you will want to place onto the folder. In this case it is the Instructables Bot. This image doesn't really have to be a PNG, but it can make the job a lot easier if it is.
Step 2: Import the Image Into Photoshop Elements
Step 3: Remove Backgrounds and Colors
This is how I did it:
First, open the image and double click on the "Index" to make it into a layer.
Then, select the black outline of the image. Press Cmd/Ctr+Shift+I to invert the selection. Now everything should be selected except the outline. Press delete. Now all the color of the image should be gone, leaving only the black outlines with the transparent background.
Now, select all of the outline (or just invert the selection again), then go to Edit ->Stroke (Outline) Selection. Set the width to 14px and the location to "Center". Make sure the color is black and the opacity is 100%.
When you're done with that, copy-paste the image onto the folder.
A new layer should be created by doing this. Adjust the position and size (use the move tool, or press Command/Control T).
Step 4: Emboss the Image
Go to Filter -> Stylize -> Emboss..., and set the Angle to -67°, the Height to 5, and the Amount to 50%.
Step 5: Brightness and Opacity
Press delete. Now only an outline of the emboss should be left.
Now, , switch to the bottom folder layer, and change the brightness to -30.
Then, go back to the image layer and change the opacity to about 40%.
Now, save your custom folder as a PNG image (when it asks you about interlace, select "None").
Step 6: Convert to an Icon
The app I use is called Img2icns. It's free for the lite version (they only have the paid version on the App Store). Img2icns actually has a feature to convert an image to a folder icon, but if you're using iConverticons you don't have that, so I'm going to show you how to do it manually, with the .icns format.
Open the converter and upload your file. Then, select the .icns conversion option, and save the .icns file somewhere, eg on the desktop.
Then, go to the icns, and get its info. Click on the small icon on the top left corner of the info box, and copy it.
Next, create or go to your folder that should have the new icon, and get its info. This time, click on the icon in the corner and click paste. You should now have your new icon in place of the regular folder icon.
Step 7: Done!
Remember to post pictures in the comments of your improved icons!